CFTC Challenge - Release: 4-20-1999

Federal Trial Examines Government Regulation Of Internet Speech

Washington, D.C.-Internet publishers and software developers will face off against the federal government in a First Amendment lawsuit that will determine whether or not individuals need government-issued licenses before offering their opinions through these media.

The trial, which will begin on May 3, 1999, at 10 a.m. at the U.S. Courthouse, at Third Street and Constitution Avenue, N.W., in Courtroom 12 (Fourth Floor) before U.S. District Court Judge Ricardo Urbina, is expected to last for three days. If the regulators prevail, development of software and online content will be dramatically curtailed as government agencies aggressively license and regulate information providers over these evolving media.

In this case, the Washington, D.C.-based Institute for Justice represents publishers of online content, websites, software, books and newsletters designed to assist people in analyzing the commodity and futures markets, and consumers who subscribe to the sites, on-line services and publications to find information and make their own decisions. Like most content providers, the Institute's clients do not invest customer funds; nor do they give person-to-person trading advice. Instead, they simply provide information and analysis to their customers.

The federal government, specifically the Commodity Futures Trading Commission (CFTC), however, wants to establish its authority to regulate and license anyone who speaks on topics under its jurisdiction-in this case the commodity markets. The CFTC claims that it, and only it, may grant the right to publish information on commodity trading and demands registration as a "Commodity Trading Advisor" before one can publish any information on these markets.

Registration requires fees, fingerprinting, background checks and, perhaps most onerously, handing over a list of one's subscribers and being subject to on-demand audits by the CFTC. Even after obtaining government's approval to speak, the license can be revoked if the agency believes the licensee does not operate in "the public interest." Failing to register risks $500,000 in fines and up to five years in prison.

Websites and hyperlinks feature prominently in government's prospective regulatory scope. The CFTC goes so far as to require registration from any site linked to a site providing information about commodities trading.

Although these regulations were designed to license and monitor commodity traders who invest customers' money in the markets, the CFTC argues that they equally apply to individuals who simply "speak" by providing information, opinion and analysis about the markets. This is why the Institute for Justice's clients filed suit.

"The Constitution has always been very clear in its prohibition on government licensing the press," said Scott Bullock, the Institute for Justice's lead attorney on the case. "That, of course, does not stop government agencies from attempting to expand their power. Clearly, the implications of this lawsuit are quite broad."

With the law on software and the Internet being made right now, jurisprudence is at a critical juncture. The Institute for Justice's case offers the first opportunity to halt an alarming trend. In January of this year, a Texas federal district court ruled that the Quicken Family Lawyer software package amounted to the "unlicensed practice of law." As a result, the court banned the sale of the product in Texas, allegedly to protect "the uninformed and unwary from overly simplistic legal advice." The government won the first case on the issue.

Although the Quicken case dealt with legal software, other states and other federal agencies have watched its outcome and will attempt to use that precedent to require the licensing and regulation of software and online content in a wide variety of fields. Traditional "guilds" like the attorney bar and the medical establishment, as well as federal agencies like the Food and Drug Administration, the Securities and Exchange Commission and others also have a strong interest in using this precedent to expand their regulatory authority to the Internet. While the government's actions demonstrate a mindset that software and the Internet are threats, consumers view these media as opportunities, for technology allows consumers to do for themselves what formerly they had to hire someone to do for them.

Unlike the litigation surrounding the Communications Decency Act and its progeny confronting "indecency" online, the CFTC case addresses informational and educational speech on the Internet and who is allowed to speak online. This is the next wave of government regulation-a regime under which individuals and companies must secure government approval before developing software or publishing online.